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Decisions assets held by the firm. Financing decisions determine both the mix and the type
of financing used by the firm. These sorts of decisions can be conveniently viewed
in terms of the firm’s balance sheet, as shown in Figure 1.2. However, the decisions are actually made on the basis of their cash flow effects on the overall value
of the firm. Review Questions
1–7 What financial activities is the treasurer, or financial manager, responsible
for handling in the mature firm?
1–8 What is the primary economic principle used in managerial finance?
1–9 What are the major differences between accounting and finance with
respect to emphasis on cash flows and decision making?
1–10 What are the two primary activities of the financial manager that are
related to the firm’s balance sheet? LG4 1.3 Goal of the Firm
As noted earlier, the owners of a corporation are normally distinct from its managers. Actions of the financial manager should be taken to achieve the objectives
of the firm’s owners, its stockholders. In most cases, if financial managers are
successful in this endeavor, they will also achieve their own financial and professional objectives. Thus financial managers need to know what the objectives of
the firm’s owners are. Maximize Profit? earnings per share (EPS)
The amount earned during the
period on behalf of each
outstanding share of common
stock, calculated by dividing the
period’s total earnings available
for the firm’s common stockholders by the number of shares of
common stock outstanding. Some people believe that the firm’s objective is always to maximize profit. To
achieve this goal, the financial manager would take only those actions that were
expected to make a major contribution to the firm’s overall profits. For each
alternative being considered, the financial manager would select the one that is
expected to result in the highest monetary return.
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- Fall '13